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What would Warren Buffett do with Sirius Minerals plc?

Sirius Minerals. Fair use.

Warren Buffett is undoubtedly the greatest investor to have ever lived, in my opinion. As a result, his soundbites and investment tips are invaluable for investors who want to learn the trade. 

One of the key themes of Buffett’s wealth creation is long-term investing. Specifically, when Buffett buys a stock, he’s buying the business based on how it will perform over the next five to ten years, not because he believes the share price will outperform the market over the next few quarters. Indeed, one of Buffett’s most memorable quotes is “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

With this quote in mind, I’m wondering what Buffett would make of Sirius Minerals (LSE: SXX)

A long term play

Sirius Minerals is the best example of a company that has enormous potential but is not popular with investors as it will take some time for this potential to be realised. 

Management believes that Sirius’s flagship potash mine in North Yorkshire will take up to five years to finish, even though the diggers are starting work this year. Building a mine is a time-consuming process, and almost all mines are delayed and cost more than expected, so it’s clear why investors are sceptical. 

But if you adopt a Buffett mentality when approaching Sirius, it’s easy to look past what could go wrong and instead focus on the firm’s tremendous potential. 

Sirius already has the funding it needs in place to complete the first stage of the mine’s development, which should be complete within five years. Within a decade, the company hopes to have reached production capacity of 20m tonnes per annum. Based on this projection, debt estimates and offtake agreements, my Foolish colleague G A Chester believes shares in Sirius could be worth as much as 271p at this point, a 15-fold increase from current levels. 

A Buffett mentality 

A 15-bagger might seem attractive right now, but the fact of the matter is it’s unlikely few of the investors who own the company’s shares today will stick around for the next decade. 

According to many sources, the average investor holding period in the UK and US is now less than a year, hardly enough time for any business to accomplish anything. So, the best way to invest in Sirius is to use a Buffett mentality. 

The next few years are going to be full of challenges for the company, and it’s likely the shares will remain volatile. To help you navigate this volatility, it may be best to view the shares as Buffett does and buy with the idea of holding for the next five or ten years, resisting the temptation to adjust the position over this period. 

Make money, not mistakes

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.